As published in Financial Managers Society\’s 2019 November/December issue of forward.
The New York Times was quick to report on the new pledge in the Business Roundtable’s Statement on the Purpose of a Corporation. The article published the same day reported that “nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, tried . . . to redefine the role of business in society.\”(1) It later stated, “Breaking with decades of long-held corporate orthodoxy, the Business Roundtable issued a statement on ‘the purpose of a corporation,’ arguing that companies should no longer advance only the interests of shareholders.”(1)
These top executives agreed on the following concept: “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”(2) One and all, they committed to “Delivering value to our customers,” “Investing in our employees,” “Dealing fairly and ethically with our suppliers,” “Supporting our communities,” and “Generating long-term value for shareholders.” The Statement went on to say, “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”(2)
What made this newsworthy was the Business Roundtable’s departure from a narrower view of the purpose of a corporation to this broader, and more inclusive, recognition of integrated stakeholder value. That an organization of CEOs from many of the largest companies reached this conclusion is not groundbreaking. That took place in 1997, when three well-known Harvard Business School service firm experts—James Heskett, W. Earl Sasser, and Leonard Schlesinger—released a book titled, The Service Profit Chain, in which they identified “a set of relationships that directly links profit and growth to not only customer loyalty and satisfaction, but to employee loyalty, satisfaction and productivity.”(3) What they gave the business community was a “foundation for a powerful strategic service vision, a model on which any manager can build more focused operations and marketing capabilities.”(3)
The Business Roundtable identified the various constituents and their shared value-based requirements. The authors of The Service Profit Chain seem to have reached the conclusion that the key determinant of a company’s success lies not just in identifying the various constituents but in the sequence in which the value is created. Their approach combines both business activities and outcomes in the link between profit and growth to loyalty, satisfaction, capability, and value. In doing so, a new understanding of the path to achieving consistent shareholder value was forged.
I have found The Service Profit Chain produces significant benefit as a dynamic framework for refining the business model and achieving next-level performance.
By adding process quality, which is defined as “designing systems that allow you to do the job the right way the first time,” one can understand the connection to key vendors and suppliers identified by the Business Roundtable.(3) The link between employees, suppliers, and customers results in sustained growth and profit, as well as enhanced value for the shareholders and our companies, for the future success of our communities and our country as a whole.
What is clear is these stakeholders define value and successful organizations continuously create it. The groundbreaking news is that the 181 CEOs on the Business Roundtable agree.
- Gelles, David and David Yaffe-Bellany. “Shareholder Value Is No Longer Everything, Top C.E.O.s Say.” New York Times. August 19, 2019. https://www.nytimes.com/2019/08/19/business/business-roundtable-ceos-corporations.html (accessed September 3, 2019).
- Business Roundtable. “Statement on the Purpose of a Corporation.” https://opportunity.businessroundtable.org/ourcommitment (accessed September 3, 2019).
- Heskett, James L., W. Earl Sasser, Jr., and Leonard A. Schlesinger. The Service Profit Chain. New York. Free 1997.